Against a backdrop of wave after wave of pandemic-driven lockdowns, the Canadian housing market continues its unprecedented boom.
The number of available properties for sale hit record-low levels in December across Canada’s largest housing markets, causing home prices to remain at or near their all-time highs. In my view, the situation has gone from being disconcerting, to downright alarming.
Price Up, Inventory Down
Average prices in Greater Vancouver rose by 17.3% in 2021. Meanwhile, home sales were up 42.2% as new listings and inventory levels continued to decline. Single-family homes skyrocketed 22% to an average price of $1,910,200, with townhomes rising at a blistering 27.5% price increase for the year. Condo prices also rose at a very strong 12.8%.
The Problem As Always – Government intervention Gone Awry
I have been the canary in the coal mine for many years now, warning that this situation could get out of hand. As the NDP government tried to tax the market into submission, I warned that we need to get serious about streamlining the approval process and eliminating government red tape. Unfortunately, the government at both provincial and municipal levels continued with tactics to suppress demand, as opposed to building more supply. We now find ourselves in a very difficult situation, one where an entire generation of millennials could end up being priced out of the market.
The Omicron Variant
I continue to hear clients suggest that higher interest rates will eventually cool the market. In my view, with the Omicron variant of COVID-19 ripping through the global economy, this is looking less likely. Phil Soper, President of Royal Lepage, recently commented on this;
“The Omicron variant of COVID-19 will likely act as a stimulant to Canada’s residential real estate market in 2022 by delaying central bankers’ plans to raise interest rates. I believe it will cause policymakers, central banks (and the) Bank of Canada to pause in their battle against inflation. In other words, it will delay aggressive interest rate hikes to combat inflation. I can’t see the emergence of a new variant, that’s causing cases to spike to levels we haven’t seen through the entire pandemic, doing anything but delaying monetary policy tightening.”
If Soper is correct, this low-interest-rate environment will continue to act as a stimulant for the Canadian housing market well into 2022.